CVS announced on October 1, 2024, that it plans to lay off nearly 3,000 employees.

CVS announced today that it plans to cut nearly 3,000 jobs—a reduction representing less than 1% of its total workforce. The primary objective of this layoff is to achieve a $2 billion cost-reduction target. CVS stated that the layoffs are intended to strengthen the company’s competitiveness. The healthcare industry has recently faced increasingly stringent regulatory pressures and shifting patient demands. CVS Health was founded in 1963 in Lowell, Massachusetts, initially focusing on beauty products. In 1969, it was acquired by Melville Corporation and later spun off from Melville in 1996, listing on the New York Stock Exchange. In November 2018, CVS acquired Aetna for $69 billion. CVS operates across a broad range of businesses, though the majority remain within the healthcare sector.

Lessons from CVS’s potential spin-off regarding vertical mergers.

Under pressure from external activist investors, media reports indicate that CVS is considering spinning off its Aetna subsidiary to mitigate the severe impact of its insurance business. CVS’s acquisition of insurer Aetna has long been hailed as a textbook example of vertical integration in the industry. Completed in 2018, the merger significantly boosted CVS’s stock price and revenue, and also served as a strategic blueprint for other healthcare companies navigating antitrust scrutiny. However, every advantage carries a corresponding drawback: while vertical integration delivered clear synergies—where 1 + 1 > 2—it also introduced systemic vulnerability—where one unit’s failure drags down the entire enterprise. Impacted by Medicare Advantage (MA) rate reductions and a sharp post-pandemic rise in medical claims ratios, Aetna’s losses have widened and show little prospect of near-term profitability, severely weighing on CVS’s overall earnings and triggering a substantial decline in its market capitalization. UnitedHealth Group, having vertically integrated pharmacy benefit management (PBM), care delivery, and health IT directly from its insurance arm, has built a comprehensive ‘pharma-insurance-care’ ecosystem. Capital markets have consistently assigned UnitedHealth a high valuation. Although CVS earned market approval for its reverse acquisition—buying an insurer to complement its PBM roots—its integrated healthcare system relies heavily on acquisitions rather than organic development, resulting in comparatively weaker group-wide strategic agility when confronting challenges. UnitedHealth’s success stems from its low-cost strategy, which enabled rapid scale expansion. After U.S. commercial insurance markets became heavily dependent on government-sponsored Medicare programs, UnitedHealth leveraged its massive membership base and extensive provider networks to rank first in MA services. Other major insurers—lacking comparable member scale or advantages in care delivery and drug pricing negotiations—have struggled to compete with UnitedHealth and instead resorted to offering more aggressive benefits in their MA plans. Between 2022 and 2023, Aetna and Humana attracted large numbers of customers by enriching their MA offerings with additional benefits. Yet, post-pandemic surges in healthcare demand—especially the strong rebound in elective surgeries—have kept medical loss ratios (MLRs) persistently high, causing Aetna to sustain losses throughout 2024. Meanwhile, to alleviate its own fiscal strain, the U.S. Centers for Medicare & Medicaid Services (CMS) has continuously curbed premium growth rates and downgraded MA plan star ratings. On April 4, 2024, CMS released the final rules for 2025 Medicare Advantage and Part D programs, allowing only a 3.7% increase in MA premiums. Although reliance on Medicare subsidies for MA plans has gradually declined since the Affordable Care Act (ACA) took effect—per-capita MA premiums falling from 112–114% of traditional Medicare costs to near parity—by 2017, the actual out-of-pocket premium difference between MA enrollees and traditional Medicare beneficiaries had effectively vanished. Nevertheless, with ongoing healthcare cost inflation, Medicare’s MA premium growth remained elevated—reaching 8% in 2023—making the 2025 3.7% cap a significant pressure point for insurers. At the same time, MA plan star ratings have experienced a sustained downward trend.

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